RBI tightens grip on forex market as Rupee faces renewed pressure

Amid the sharp depreciation in the rupee over the past month, the Reserve Bank of India is taking more steps towards shoring up the currency against the dollar.

The latest measure bars banks from offering rupee non-deliverable forward (NDF) contracts to corporate clients. This move is aimed at curbing speculative activity and stabilising the rupee amid the conflict in West Asia that has raised growth and inflation risks for India, which is import-dependent for a large chunk of its energy requirements.

"Authorised dealers shall not offer non-deliverable derivative contracts involving INR to resident or non-resident users," the central bank said in a statement.

The move will force banks to sell dollars, which should help the rupee strengthen.

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NDF is a financial derivative used to hedge or speculate on currency exchange rates. These contracts are typically settled in cash, unlike traditional forward contracts, where actual currencies are exchanged when the contract matures.

The move may curb arbitrage trading that was happening as clients took advantage of the spot versus forward price differential.

Authorised dealers may, however, continue to offer deliverable foreign exchange derivative contracts to users to meet their hedging requirements, provided that the user does not undertake offsetting non-deliverable derivative positions, the RBI stated.

The Reserve Bank also notified that authorised dealers shall not permit a user to rebook any foreign exchange derivative contract involving the rupee, whether deliverable or non-deliverable, which is cancelled after the date of issuance of these instructions.

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Authorised dealers will also not be able to undertake any foreign exchange derivative contract involving the rupee with their related parties.

The move comes days after the central bank directed lenders to cap their net open rupee positions in the onshore deliverable market within $100 million at the end of each business day. That move was expected to trigger a temporary increase in dollar supply, in turn strengthening the rupee.

However, the impact was short-lived as corporates took advantage of the arbitrage that opened up between onshore and NDF markets, according to market watchers. The latest move is expected to curb that.

The rupee had appreciated on Monday morning but slipped below 95 to the dollar intra-day again, forcing the RBI to step in to stem the slide.

The RBI measures come in the backdrop of a 4 per cent depreciation in the rupee against the greenback in March.

The rupee tumbled close to 10 per cent in 2025-26, its worst annual drop in over a decade.